Role Of Underwriters In Restraining Earnings Management In Initial Public Offerings

We investigate the relationship between underwriter reputation and earnings management of IPO firms over the period of 1991-2005. We find that IPO firms engage in less earnings management if they are underwritten by prestigious investment bankers. Furthermore, the role of prestigious underwriters in...

Full description

Saved in:
Bibliographic Details
Published in:Journal of applied business research 2012-07, Vol.28 (4), p.709-723
Main Authors: Lee, Hei Wai, Xie, Yan Alice, Zhou, Jian
Format: Article
Language:English
Subjects:
Certification
Class action lawsuits
Earnings
Earnings management
Firm theory
Going public
Initial public offering
Initial public offerings
Internet
Investment bankers
Investments
Investors
Management
Public Company Accounting Reform & Investor Protection Act 2002-US
Reputations
Roles
Sarbanes-Oxley Act
Studies
U.S.A
Underwriting
Venture capital
Citations: Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:We investigate the relationship between underwriter reputation and earnings management of IPO firms over the period of 1991-2005. We find that IPO firms engage in less earnings management if they are underwritten by prestigious investment bankers. Furthermore, the role of prestigious underwriters in restraining earnings management of IPO issuers do not change during the Internet Bubble period or after the passage of the Sarbanes-Oxley Act (SOX). The findings support the certification role of underwriters in the IPO process. We also document that firms going public in the post-SOX period engage in less earnings management compared to firms going public in the pre-SOX period . Further findings suggest that the changing objectives of venture capitalists may explain the reduction in the level of earnings management of IPO firms following the passage of SOX.
ISSN:0892-7626
2157-8834
DOI:10.19030/jabr.v28i4.7054